Appeal from the Circuit Court Attorney General of the State of Illinois, of Lake County. No. 09-L-892 Honorable Jorge L. Ortiz, Judge, Presiding.
The opinion of the court was delivered by: Presiding Justice Jorgensen
PRESIDING JUSTICE JORGENSEN delivered the judgment of the court, with opinion. Justices Zenoff and Hudson concurred in the judgment and opinion.
¶ 1 Plaintiff, Lisa Madigan, the Attorney General of the State of Illinois, on behalf of the People of the State of Illinois, filed a complaint under the Illinois Estate and Generation-Skipping Transfer Tax Act (Act) (35 ILCS 405/1 to 404/18 (West 2002)) against defendant, Julius Kole, personally. Plaintiff sought over $300,000 in additional estate tax, interest, and late-filing penalties related to the Internal Revenue Service's (IRS's) adjustment of the Anthony F. Crespo estate's estate tax liability. Plaintiff alleged that, defendant, as the estate's executor, was personally liable for the additional estate tax and associated interest and penalties due as a result of the adjustment. The parties filed cross-motions for summary judgment (735 ILCS 5/2-1005 (West 2002)), and the trial court granted defendant's motion and denied plaintiff's motion. Plaintiff appeals, arguing that summary judgment should have been granted in her favor (and denied for defendant) because: (1) the Act imposes personal liability on defendant for unpaid additional estate tax; (2) a certificate of discharge that plaintiff issued to defendant did not discharge defendant from personal liability for any additional estate tax; and (3) additional estate tax is due and, as the person required to file a supplemental return, defendant is personally liable for failing to file such return and pay the additional estate tax. We reverse.
¶ 3 Anthony F. Crespo died on July 31, 2002. Prior to his death, he had named defendant as the executor of his estate (estate) and as successor trustee of the Anthony F. Crespo Living Trust Dated April 19, 1993. On April 30, 2003, defendant, acting as executor of the estate and trustee of the trust, timely made a $127,000 Illinois estate tax payment and requested an extension to file the estate's Illinois estate tax return. The extension request was granted, and, on October 31, 2003, defendant timely filed an Illinois estate tax return that reported an $81,397 Illinois estate tax liability (labeled on the form as the total state death tax credit). Pursuant to the Act, he attached to the return a copy of the estate's federal estate tax return. 35 ILCS 405/6(f) (West 2002).
¶ 4 Plaintiff received the estate's Illinois estate tax return on November 3, 2003. Plaintiff reviewed the attached federal return to determine the amount of estate tax due (reflected on the federal return as the state death tax credit). On November 5, 2003, plaintiff issued a "Certificate of Discharge and Determination of Tax" (Certificate of Discharge), reflecting that $81,397 was owed in estate taxes. The Certificate of Discharge stated, in part: "On the basis of the information submitted, the [plaintiff] has determined that the Illinois estate tax liability, including any interest and penalties of the estate[,] has been paid." It further provided: "This certificate is issued and may be exhibited as evidence of (1) the complete release of all the property of this estate from the lien imposed by the Illinois Estate Tax Law and (2) the discharge from personal liability of the executor of this estate for the estate tax, penalties and interest imposed by the Illinois Estate Tax Law." The estate applied for and received a $45,603 refund.
¶ 5 The IRS subsequently audited the estate's federal estate tax return. On August 11, 2006, the IRS issued a "Report of Estate Tax Examination Changes" (IRS Report or Report), stating that the estate's state death tax credit increased from $81,398*fn1 to $243,729 (based on the IRS's revised calculation of the federal taxable estate from $2,121,623 to $4,405,106).
¶ 6 On September 16, 2009, plaintiff filed a complaint, seeking from defendant the additional estate tax and related interest and late-filing penalties. Plaintiff alleged that no supplemental Illinois estate tax return was ever filed on the estate's behalf and that no payment was ever made toward the estate's additional Illinois estate tax liability. Based on the 2006 IRS adjustment, plaintiff determined that the estate owed $162,332 in additional Illinois estate tax, a $40,583 late-filing penalty, a $27,596 late-payment penalty (through September 8, 2009), and $103,171 in interest (through the same date), with additional interest and penalties accruing. Plaintiff further alleged that defendant was personally liable for the additional tax, interest, and penalties and noted that requests for payment were issued on May 21, 2007, August 17, 2007, and April 21, 2009.
¶ 7 Defendant moved to dismiss plaintiff's complaint, arguing that,
through the 2003 Certificate of Discharge, plaintiff had released him
from personal liability for any unpaid additional estate tax,
penalties, or interest. 735 ILCS 5/2-619(a)(6) (West 2002) (the claim
"has been released, satisfied of record, or discharged in
bankruptcy"). In response, plaintiff argued that the additional tax is
a separate assessment; that the Certificate of Discharge stated that
it was issued on the basis of the information submitted; that
plaintiff routinely issues supplemental Certificates of Discharge; and
that plaintiff does not independently enforce the federal tax law
addressing the recalculation of estate tax liability. Plaintiff
attached to her response the affidavit of John Flores, a supervising
assistant Attorney General, who stated that plaintiff routinely issues
a Certificate of Discharge after the liability assessed as a result of
an originally filed estate tax return is satisfied and that plaintiff
also issues a supplemental Certificate of Discharge after liability
assessed as a result of a supplemental estate tax return is satisfied.
Flores also stated that the estate never paid the additional Illinois
estate tax liability that arose as a result of the IRS's adjustment
and that plaintiff never issued a supplemental Certificate of
Discharge to the estate after the federal audit. On March 17, 2010,
the trial court denied defendant's motion to dismiss.*fn2
Defendant subsequently filed his answer to plaintiff's
complaint, admitting that the IRS issued its Report but denying any
knowledge of an increase in the estate's credit and demanding proof
that the estate owed additional tax and that no supplemental return
was filed or payment made.
¶ 8 On July 21, 2010, plaintiff filed her first of two motions for summary judgment, arguing that, pursuant to section 10 of the Act, defendant was personally liable for the estate's unpaid additional estate tax. Specifically, plaintiff argued that defendant, as executor, was personally liable for the unpaid tax liability; a certain amount was due; and the estate failed to pay the additional tax owed. Plaintiff attached to her motion Flores' affidavit; the estate's Illinois estate tax return (with the attached federal estate tax return); and a sample supplemental Certificate of Discharge.
¶ 9 In response, defendant admitted that the estate never paid any additional tax to Illinois or filed a supplemental return, but he objected on hearsay grounds to the contents of the IRS Report. Also, he argued that the 2003 Certificate of Discharge unambiguously released him from personal liability for all estate taxes, including any additional estate tax. Finally, he argued that there was no material factual question on the issue of the amount of any additional tax because the document that plaintiff offered to establish this tax, the IRS Report, constituted hearsay.
¶ 10 In his first of two summary judgment motions, defendant argued that the Act does not impose personal liability for one's failure to pay any additional estate tax and, alternatively, that, if the term "Illinois transfer tax" includes "additional tax," then the 2003 Certificate of Discharge discharged him from all personal liability
¶ 11 In her reply in support of her summary judgment motion, plaintiff argued that defendant had admitted to the amount of additional tax outstanding and due because, in answers to interrogatories, he admitted that the IRS issued its Report and he did not deny that the document, attached to the complaint, was a copy of the Report.
¶ 12 Plaintiff also asserted that defendant admitted to the estate's federal tax liability increase on Form 890, "Waiver of Restrictions on Assessment and Collection of Deficiency and Acceptance of Overassessment-Estate, Gift, and Generation-Skipping Transfer Tax" (Waiver). Dean Solovy, the estate's attorney, apparently signed the form, a copy of which plaintiff attached to the motion, on September 7, 2006. The form stated:
"I consent to the immediate assessment and collection of any deficiencies (increase in tax and penalties) and accept any overassessment (decrease in tax and penalties) shown below, plus any interest provided by law. I understand that by my signing this waiver, a petition to the United States Tax Court may not be made, unless additional deficiencies are determined."
The form reflected a $975,627 increase in federal tax.
¶ 13 On November 4, 2010, the trial court denied the parties' first summary judgment motions, finding that summary judgment was precluded by factual issues, including as to the amounts shown on the uncertified copy of the IRS Report (noting foundational issues with its admission).
¶ 14 On December 6, 2010, plaintiff filed her second summary judgment motion, which included certified copies of the IRS Report and the Waiver. In his second summary judgment motion, defendant realleged the arguments he had raised in his first such motion.
¶ 15 The trial court, on February 1, 2011, granted defendant's second summary judgment motion and denied plaintiff's second summary judgment motion. The court found that sections 6(c) and 10(c) of the Act were not ambiguous and did not impose personal liability on an executor for any additional estate tax owed by an estate. The court stated that, had the General Assembly intended for such liability to attach, it would have clearly provided for it in a tax statute. Further, the court noted that it did not need to reach the questions in plaintiff's motion concerning whether plaintiff established the amount of additional tax owed and whether the 2003 Certificate of Discharge absolved defendant of personal liability. Plaintiff appeals.
¶ 17 A. Standard of Review
¶ 18 In this appeal, plaintiff requests that we review the trial court's rulings on the parties' summary judgment motions and consider statutory construction issues. Summary judgment should be granted whenever the pleadings, depositions, admissions, and affidavits on file, viewed in the light most favorable to the nonmoving party, show that there are no disputed material facts between the parties and that the moving party is entitled to judgment as a matter of law. People ex rel. Department of Public Health v. Wiley, 218 Ill. 2d 207, 220 (2006). We review de novo the trial court's entry of summary judgment. Id. The construction of a statute is a question of law, which we review de novo. Ries v. City of Chicago, 242 Ill. 2d 205, 216 (2011).
¶ 19 B. Pick-Up Estate Tax Scheme
¶ 20 Before turning to the arguments raised in this appeal, we review at some length the estate tax scheme in effect in 2002, the year of Crespo's death. Under the Internal Revenue Code of 1986, as amended (IRC), an estate was entitled to a tax credit (the state tax credit or state death tax credit) from the federal estate tax for estate taxes paid to any state, up to a maximum amount set forth by the IRC. 26 U.S.C. § 2011 (2000). Between 1983 and 2002,*fn3 "Illinois imposed a 'pick-up' estate tax 'coupled' with federal law." Brooker v. Madigan, 388 Ill. App. 3d 410, 411 (2009). Specifically, Illinois tied its estate tax to the federal state tax credit (id.) and "defined state estate-tax liability as the amount of the credit for state tax allowable under federal law" (David A. Berek, ...